Tax Fraud to Watch Out For & How to Report to The IRS

Tax season is underway and it also draws more criminal activity. The IRS reports that identity theft spikes around the time to file taxes and it is one of the most favorite forms of tax scam used by the crooks. Although different forms of tax scam persist throughout the year, now it is time to take extra precautions.

Every year the IRS releases a “Dirty Dozen Tax Scams” list. These are the most common and tried ways in which perpetrators enrich themselves typically at a taxpayer’s expense. Most of those scams are perennial so be especially aware of the following:

#1 – Identity theft

Filing a tax return using stole personal information then claiming and pocketing a refund. This has become the number one problem for the IRS. The IRS has dedicated more resources than ever to combat it, but there are still many cases falling through the cracks. If that wasn’t enough, organized crime groups have engaged in this type of scam because it is hard to prevent it immediately. If you receive a letter from the IRS questioning some wages you never received or anything else that sounds suspicious to you or doesn’t make sense, contact the IRS immediately as this may be an early indicator you were a victim of the identity theft. Many identity theft cases initiate through phishing

#2 – Phishing

Trying to obtain your personal information by sending email that mimics or resembles legitimate sources. You may also stumble upon a website that looks very convincing and will request enough personal information to use it against you. Many individuals fall victims to those practices due to high level of their sophistication. It is important to remember that the IRS will not request any personal of financial information via email, phone call, social media, or text message. If you are solicited personal information and have doubts about legitimacy of the person you speak to, request a telephone and an employee number, if possible, and call back and speak with an IRS employee

#3 – Return preparer fraud

Tax preparers who promise unrealistic refunds, charge inflated fees for services, and even enter into theft of refunds; your preparer should have a Preparer Tax Identification Number (PTIN) and enter it on the prepared return; failure to do so should raise a red flag

#4 – Hiding income offshore

Evading taxes by not reporting income generated abroad and using numerous methods to use the funds such as debit or credit cards, wire transfers, or employee-leasing schemes is considered illegal

#5 – “Free money” from the IRS

Charging fees for “advice” on how to file taxes and claim a refund with little or no documents should be an obvious sign of trickery. No one can make those claims or promises without previously analyzing your personal and professional situation

#6 – Frivolous arguments

Any statement that disagrees with current tax law that is typically impossible to defend. The arguments are made to excuse not filing tax returns or not paying the right share of tax liability

#7 – Abuse of charitable organizations and deductions

In this scenario, scammers intend to exploit the benefits reserved for 501(c)(3) organizations, manipulating and misappropriating donations

#8 – Zero wages

In order to avoid paying taxes, some people will claim no income and even file Form 4852 that substitutes Form W-2 or 1099R blaming an employer for failure to provide year-end earnings forms. Because the IRS helps taxpayers to obtain their W-2s or 1099s, not receiving the form is rather an unconvincing excuse

#9 – Misuse of trusts

Transferring assets into trusts to shield them from paying tax and other liabilities; transactions performed by the trusts executives are often very questionable and hardly even deliver on promises made; common forms of trusts as of late that try to lure taxpayers are annuity trusts and foreign trust

#10 – Disguised corporate ownership

Often used to cover the true operations of an organization and take advantage of benefits and deductions otherwise not available

#11 – Inaccurate and/or inflated income and expenses

The purpose is to qualify for certain refundable credits or exemptions or bring down taxable income

#12 – False Form 1099 refund claims

Typically full of false information to qualify for credits or deductions taxpayer would otherwise not be able to claim